VZCZCXRO3725
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #1163/01 1910234
ZNR UUUUU ZZH
R 100234Z JUL 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 2785
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLL
RUEHNE/AMEMBASSY NEW DELHI 2712
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 001163 
 
SIPDIS 
SENSITIVE 
 
STATE PASS TO EXIM FARRELL AND ELLIS 
STATE PASS TO USTR EHLERS AND WEISEL 
DEPT FOR EAP/MTS AND EEB/IFD/ODF 
COMMERCE FOR 4430/NADJMI AND 6930/HUEPER 
ENERGY FOR PI-32 CUTLER 
TREASURY FOR T RAND AND G RAO 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD ENRG EPET ID
SUBJECT: SCENESETTER FOR EXIM FARRELL VISIT TO INDONESIA 
 
¶1. (SBU) Summary:  Your visit to Indonesia offers an opportunity to 
improve the competitive position of U.S. companies in this economy, 
at a time of improving U.S.-Indonesia bilateral relations.  The 
effects of the global financial crisis have been milder in Indonesia 
than elsewhere, with Indonesia experiencing only a growth slowdown 
rather than recession.  The Indonesian government has introduced a 
number of protectionist policies in recent months.  Indonesia needs 
investment in several key sectors, especially infrastructure and 
energy.  Participation by the U.S. Export-Import Bank can help U.S. 
companies successfully compete in the development of these sectors. 
End Summary. 
 
Election Outcome 
---------------- 
 
¶2. (SBU) President Yudhoyono appears to have won the Presidential 
election in the first round on July 8.  Yudhoyono received about 60% 
of the vote, according to quick counts that were accurate in April's 
parliamentary voting.  Although official results will not be 
released until later this month, the President's apparent victory is 
being treated as a fait accompli by Indonesians.  Many observers 
expect changes among Indonesia's cabinet officials as the President 
forms a new governing coalition, but there have been no official 
announcements to date. 
 
Comprehensive Partnership 
------------------------- 
 
¶3. (SBU) President Yudhoyono proposed the idea of a U.S.-Indonesian 
comprehensive partnership in November 2008.  Secretary Clinton 
endorsed the idea during her February visit to Indonesia.  Both 
sides expect to announce the launch of the partnership during a 
possible President Obama visit to Indonesia in November.  The 
proposed comprehensive partnership consists of three baskets: 
political and security cooperation; sociocultural, educational, and 
technological cooperation; and economic and development cooperation. 
 Yudhoyono's apparent victory in Indonesia's presidential election 
on July 8 should allow the partnership to proceed. 
 
Economic Outlook 
---------------- 
 
¶4. (SBU) Indonesia has weathered the financial crisis better than 
many of its neighbors.  Consensus forecasts are for 3.5% growth this 
year, slightly lower than the government's goal of 4.3% growth. 
Indonesia's moderate economic slowdown is in sharp contrast to many 
of its Asian neighbors experiencing recession.  The Indonesian 
government enacted a modest stimulus bill earlier this year that 
provided tax incentives and some additional spending for 
infrastructure projects already underway. 
 
¶5. (SBU) Despite its relatively robust economic performance, 
Indonesia has instituted a string of protectionist measures in the 
wake of the global economic crisis.  Regulations on import 
licensing, pharmaceutical licensing, local content for 
telecommunications projects, required use of letters of credit for 
exports of certain commodities, restrictions on the sale of offshore 
financial products and local print requirements for films have all 
created hurdles for U.S. companies seeking to do business in 
Indonesia.  We have fought these measures with some success. 
Indonesia has delayed implementation of some measures and offered 
exemptions for specific U.S. companies in other cases. 
 
¶6. (SBU) Indonesia has lowered its foreign direct investment 
projections as a result of the global economic slowdown.  Against 
this backdrop, an increase in U.S. private sector engagement in key 
sectors would be welcome, and ExIm's desire to increase 
participation in Indonesia can significantly further this goal.  We 
are pursuing other potential steps to facilitate U.S. business in 
Indonesia, including negotiating an updated OPIC agreement. 
 
Key Sectors 
----------- 
 
¶7. (SBU) Inadequate infrastructure and subsidized energy consumption 
remain key challenges to Indonesia's development.  Roads, ports, 
airports, and electric power generation are all insufficient for 
Indonesia's current needs.  Significant new investment in all of 
these sectors is required if Indonesia is to achieve the higher 
sustained growth needed to reduce poverty and increase living 
standards. 
 
JAKARTA 00001163  002 OF 002 
 
 
 
¶8. (SBU) Civil aviation has been a real success story for U.S. 
companies in Indonesia recently.   Parliament's recent enactment of 
key provisions of the Cape Town Agreement enabled a number of deals, 
the largest of which was to Lion Air.  Other likely sales of 
helicopters and airplanes are in the works. 
 
¶9. (SBU) The medical equipment market has potential.  The Indonesian 
government has recently issued permits for some new private 
hospitals.  This should create an opportunity for U.S. manufacturers 
of high-value medical devices. 
 
Energy and Power 
---------------- 
 
¶10. (SBU) The oil and gas sector continues to attract foreign 
companies and investment, and will be a major source of business for 
U.S. firms.  A prolonged decline in investment following the 1997-98 
financial crisis led to a significant decline in oil output, and 
Indonesia has been a net oil importer since 2004.  Policymakers are 
troubled that the production decline was accompanied by increasing 
production costs, needed to sustain output at old wells.  Government 
efforts to control costs and promote domestic services companies by 
fiat concern oil and gas producers. 
 
¶11. (SBU) Indonesia faces a critical shortage of electricity, and 
many regions experience regular electricity blackouts.  Nearly 45% 
of Indonesia's installed capacity is captive power self-generated by 
manufacturers or buildings.  The government has launched two phases 
of an electricity generation "crash program," each intended to add 
10,000 MW of generating capacity.  Phase I consists of 35 new 
coal-fired power plants, primarily built by Chinese contractors with 
Chinese concessionary financing.  Phase I has suffered from 
production delays and management problems.  Some Chinese financing 
has been stalled due to seemingly unrelated business disputes. 
 
¶12. (SBU) The Phase II crash program offers a new opportunity to 
international energy companies.  This program is to consist of 60% 
renewable energy - geothermal and hydro power - and independent 
power producers will build and operate a majority of the power 
plants.  The Indonesian government has not yet determined how it 
will finance this program in a power market where consumer tariffs 
are heavily subsidized. 
 
HUME